USEC Inc. Q4 2009 Earnings Call Transcript

| About: Centrus Energy (LEU)

USEC Inc. (USU) Q4 2009 Earnings Call March 1, 2010 8:30 AM ET


Steven Wingfield - Director, Investor Relations

John Welch - President and Chief Executive Officer

John Barpoulis - Senior Vice President and Chief Financial Officer

Phil Sewell – Senior Vice President

Bob Van Namen - Senior Vice President


Analyst for Laurence Alexander - Jefferies & Company

Gabriela Bis - Goldman Sachs


Welcome to the USEC Incorporated fourth quarter 2009 earnings results conference call. This call is being recorded. With us today from the company is Mr. John Welch, President and Chief Executive Officer and Mr. Steven Wingfield, the Director of Investor Relations. Management will make opening remarks, which will be followed by a question-and-answer period. At this time, I would like to turn the call over to Mr. Steve Wingfield. Please go ahead, Sir.

Steven Wingfield

Good morning. Thank you for joining us for USEC's conference call regarding the fourth quarter of 2009, which ended December 31. With me today are John Welch, President and Chief Executive Officer; John Barpoulis, Senior Vice President and Chief Financial Officer; Phil Sewell, Senior Vice President; Bob Van Namen, Senior Vice President and Tracy Mey, Controller and Chief Accounting Officer.

Before turning the call over to John Welch, I want to welcome all of our callers as well as those listening to our webcast via the Internet. This conference call follows our earnings news release issued earlier this morning. That news release is available on many financial websites, as well as our corporate website, I want to inform all of our listeners that our news releases and SEC filings, including our 10-K, 10-Qs and 8-Ks are available on our website. We expect to file our annual report on Form 10-K later today. A replay of this call also will be available later this morning on the USEC website.

I would like to remind everyone that certain of the information that we may discuss on this call today may be considered forward-looking information that involves risk and uncertainty including assumptions about the future performance of USEC. Our actual results may differ materially from those in our forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements is contained in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q.

Finally, the forward-looking information provided today is time-sensitive and is accurate only as of today, March 1, 2010. This call is the property of USEC. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of USEC is strictly prohibited.

Thank you for your participation. Now I would like to turn the call over to John.

John Welch

Good morning. Thank you for joining us to discuss USEC’s fourth quarter and 2009 results. Over the course of the next few minutes I will address our ongoing activities to deploy the American Centrifuge Technology and the standards of the AC100 machines being prepared for Lead Cascade testing. I will also discuss other efforts designed to address the concerns raised last summer by the Department of Energy’s Loan Guarantee Program. I will also briefly discuss our financial results for the year and our outlook for 2010 and provide sufficient time for your questions.

Taking a look at the bottom line we reported net income for the year of $58.5 million compared to net income of $48.7 million in 2008. Our annual results were bolstered by a fourth quarter where we reported net income of $49.5 million or roughly double the net income reported in the fourth quarter of 2008. Full-year 2009 SWU sales volume was 30% higher than 2008 due to the timing of nuclear utility refuelants. A significant factor in our fourth quarter was the receipt of approximately $70 million pre-tax related to a trade case settlement with Eurodif and its affiliates.

As you know, we began demobilizing construction activities for the American Centrifuge Plant in August. We saw a reduction in expense in the fourth quarter but the larger impact was on capital spending. Advanced technology expense in the fourth quarter of 2009 was approximately $25 million which was a decrease of about $4 million compared to the same quarter in 2008. For the full-year our expense related to American Centrifuge Technology was approximately $118 million compared to $109 million in 2008.

In addition, capital spending for 2009 related to building the American Centrifuge Plant was $379 million which was about $80 million less than 2008. So although we demobilized project construction beginning in [office] it did take time to wind down spending. John Barpoulis will provide details about our fourth quarter and year-end results shortly but I do want to touch on our cash flow generated by operations in 2009.

In 2008 the main reason we had a negative cash flow from operations was that we increased our inventory by $271 million to prepare for an increase in customer deliveries during 2009. We monetized that inventory build during 2009. Cash collections from customers and the receipt of approximately $70 million from the trade case settlement with our French competitor resulted in total cash from operations of $443 million.

This morning’s news release gave a very complete outlook of our expectations for revenue, cost of sales and SG&A expenses for 2010. Given the substantial uncertainty regarding our spending pattern for the American Centrifuge Project we could not provide guidance for the bottom line. As we gain clarity on our project spending later in the year we will revisit our guidance.

Clearly we are facing a challenging environment. Although our revenues are expected to stay strong at approximately $2 billion gross profit margin is under pressure. We are seeing a repeat of an average inventory cost that is expected to rise at a faster rate than the average price billed to customers. There is some open demand for SWU but probably not enough to change that picture in 2010. However, we are continuing to work to improve the outlook going forward. While there is not much open demand for additional spot sales in 2010 we have identified some open positions by our customers over the next several years that we have targeted for new contracts.

Preserving the value of our substantial investment in the American Centrifuge Technology is a key element of our plan to enhance long-term shareholder value. Therefore, we are continuing to invest in ACT development and demonstration as we work to address DOE’s concerns. We have seen clear signals and actions by the DOE and the Obama Administration that are supportive of nuclear power and USEC.

In January, for example, we signed an amendment to our 2002 agreement with DOE regarding milestones for deploying the American Centrifuge Technology. This amendment moved the financing milestone for building the American Centrifuge Plant until November 2010, a shift forward of one year. Following the regularly scheduled quarterly meeting with DOE officials to update them on our progress towards deploying the American Centrifuge we learned that DOE is prepared to work with us to reach an agreement that would provide USEC with $45 million in matching funds to continue American Centrifuge development and demonstration activities. You will recall the DOE committed to provide those funds last August.

We are still exchanging terms for this proposed agreement. We expect these discussions to continue and we are pleased to work together with the DOE to support the development and demonstration activities. Many of you heard the President come out and support nuclear power recently. It was a pleasure to hear him use the high visibility of the State of the Union address to promote an expansion of nuclear power in the United States. Two weeks ago he put action behind those words as he and Secretary Steven Chu announced the first conditional commitment for $8 billion in loan guarantees for Southern Company’s Vogel plant in Georgia.

The announcement of loan guarantees for a nuclear power project was great news. But we were further hardened by the President’s words. He said, “Whether it is nuclear energy or solar or wind energy, if we fail to invest in the technology of tomorrow then we are going to be importing those technologies instead of exporting them. We will find behind. Jobs will be produced overseas instead of here in the United States of America and that is not a future that I will accept.”

We could not agree more. We are prepared to deploy the innovative American Centrifuge Technology which can help assure a stable domestic supply of nuclear fuels for decades to come. I would like to echo President’s Obama’s closing remarks that day. He said, “The choices we make will affect not just the next generation but many generations to come.” We think the vocal support over the past few weeks is positive for the nuclear industry in general and hopefully for USEC specifically.

I know our work on the American Centrifuge Project is foremost in many investors’ minds. We have an update in the earnings release that was issued earlier today and there is more detail in the 10-K annual report we will issue later today.

With that let me bring you up to date and provide some color on what we have been working on recently in our path forward. As we have previously discussed, DOE raised technical and financial concerns last summer about our loan guarantee application for $2 billion. As a result, the DOE and USEC agreed to delay final review of our application. We took the steps necessary to de-mobilize construction of the plant and to scale back some development activities to preserve liquidity as we focused on addressing DOE’s concerns.

We also underwent a quality stand-down to remove, disassemble and inspect all of the AC100 machines. We have reassembled these machines with improved components. The procedures coming out of that stand down will insure full compliance with our quality assurance program for centrifuge component manufacturing and assembly.

We have revised our technology and demonstration program to fully address the concerns and issues identified in the DOE’s independent engineer’s report on the project. The engineers in DOE want to see production ready machines operate in a commercial cascade configuration. To address that concern we have installed more than two dozen production ready AC100 machines with updated components in Piketon, Ohio. The machines are spinning and have been going through a lengthy process of commissioning on uranium gas.

We expect the transition to Lead Cascade testing in early 2010. This cascade will be in a commercial plant configuration and operate under commercial plant conditions. Even as this cascade is being prepared we are building a limited number of additional machines that will be added to the cascade. Building additional machines has several purposes. First, it supports the machine manufacturing infrastructure.

In essence we are keeping the supply chain warm so that we can restart more quickly when we receive the DOE loan guarantee funding. Two, we are further demonstrating that the quality control issues in assembly have been rectified. Three, more machines will produce more machine hours for the purpose of demonstrating machine reliability.

That is the work going on in Piketon. In Oakridge, Tennessee our engineers are continuing development work to optimize operating characteristics for performance and reliability. They are also moving forward with value engineering improvements and performance enhancements. I want to emphasize the work we are doing in Oak Ridge is expected to continue over the longer term. Even as we enter commercial deployment we believe we can enhance our centrifuge technology further allowing us to develop more productive and less costly machines that can be introduced over time.

I have talked about the steps we are taking to address technical concerns. In addition there are also financial issues. We are addressing these financial concerns in several ways and to some extent this effort is interwoven with our technical work. During the fall we said we were evaluating the strategic options for the future of the project. This evaluation has included reviews of scope and scale of the plant, the deployment of machines over a longer period of time, alternate financing structures and the costs and feasibility of remobilizing at a later date.

We recognize the cost of demobilizing and remobilizing the project and higher costs for building the plant and machines will require more than $2 billion from the DOE loan guarantee program and our expected internally generated cash flow from operations to complete the project. We have engaged a financial advisor and are pursuing strategic alternatives as one path for raising this additional capital. As you would expect in a situation such as this I am not able to provide further details at this time.

We do continue to see great interest by our customers in completing the American Centrifuge Project. There are more than 50 reactors currently under construction worldwide and a new wave of U.S. reactors would add to the future demand of our product. As they are considering expanding their fleet of reactors our customers want to know that additional capacity will be available in the next decade to meet the growing demand for low enriched uranium fuel. They also want diversity of supply and they want to see a U.S. owned and operated enrichment plant.

In closing, let me emphasize three things. Our core business today is profitable and generates significant cash to fund current operations. We are executing on our strategy for the American Centrifuge Project and are focused on addressing DOE’s concerns before amending our loan guarantee application. We certainly appreciate your patience as we go through our evaluation of strategic alternatives and while there is no guarantee this process will result in a transaction or agreement I can emphatically assure you that USEC’s management and board is focused on delivering value to shareholders.

Now I would like to turn the call over to John Barpoulis for a report on the financial results and our outlook for 2010. John?

John Barpoulis

Thanks John and good morning everyone. Starting at revenue for the quarter total revenue was $468 million, an increase of $36 million or 8% from the same quarter last year. For the full-year our revenue topped $2 billion for the first time. $2.37 billion to be more precise. For the full-year that was an increase of $422 million or 26%.

As is typical for USEC our SWU sales made up the majority of revenue. Revenue from SWU sales was 21% and 40% higher for the quarter and year respectively compared to the same period for 2008. For the full-year SWU volume increased 30% compared to 2008 due to the timing of utility customer refueling. As SWU contracts that we have signed in recent years at higher prices and with price adjusters become a larger portion of our backlog we are seeing an increase in average prices billed to customers.

In 2009 prices improved an average of 7% compared to 2008.Uranium revenue was $31 million in the fourth quarter which was a decrease of $32 million compared to the same quarter in 2008. For the full-year uranium revenue totaled $181 million, a decrease of $36 million or 17%.

Looking at the annual results the average price billed to customers for uranium was up 28% over the prior year but uranium sales volume was 35% lower due to the mix and timing of sales contracts. Uranium market prices generally declined during the past year so we do not expect to see the same kind of price increase in 2010.

As those who follow the company closely know, we under-feed the enrichment process when it makes economic sense. We can obtain uranium for resale by using more electric power and using less natural uranium feed stock. The economics of under-feeding the enrichment process, however, are affected by uranium prices and the cost of electric power. Uranium prices remain volatile and we continue to monitor and optimize the economics of our production based on the cost of power and market conditions for SWU and uranium.

If uranium prices increase the economics of under-feeding clearly improve. We were a very interested party when DOE announced last month that it would not use its uranium inventory to fund its Portsmouth decommissioning project beyond this year.

Turning back to revenue, the U.S. government contract segment revenue for the quarter was $56 million, basically unchanged from the same quarter last year. For the full-year revenue in this segment was $209 million, down 6% reflecting net declines in contract services performed at the gaseous diffusion plants and the expiration in 2008 of a database management contract that our subsidiary NAC had with DOE.

On the cost side of the ledger, our two largest cost components, our electric power and the price we pay Russia to purchase SWU. We have a power contract until mid-2012 with the Tennessee Valley Authority (TVA). That agreement provides moderate annual increases to the base price we pay plus an adjustment up or down based on TVA’s cost of fuel and purchase power. This fuel cost adjustment resulted in a 6% increase in fuel costs in 2009 which is an improvement over the 15% add on we saw in 2008.

An end to a multi-year drought in the Tennessee Valley in 2009 increased availability of lower cost hydro power. Lower natural gas and coal prices also helped keep fuel costs down. In fact, our power bill was down by $73 million and the average annual cost per megawatt hour declined by 9% in 2009 compared to the same period of 2008. The purchase price paid to Russia was 11% higher in 2009 than in 2008 which is the same increase that we also saw in 2008 over 2007. We purchased about half of our SWU supply from Russia so these increases had a significant effect on our cost of sales.

These purchase and production cost components affect our cost of sales for the LEU segment. The cost of sales for SWU and uranium was $1.64 billion which was $438 million or 36% more than in 2008. This change was due in large part to the 30% increase in SWU volume but also reflects higher SWU unit costs. Cost of sales per SWU in 2009 was 14% higher than in 2008 reflecting changes in our monthly moving average inventory costs. Although unit production costs were 2% lower in 2009 our cost of sales per SWU reflected higher purchase costs from Russia, higher unit production costs in 2008 and a greater allocation of production costs to SWU inventory due to declines in uranium values in 2009.

Costs of sales in the government contract segment decreased $8 million during 2009 compared to 2008 primarily due to higher benefit costs incurred as a result of the decline in 2008 in the value of pension and post-retirement benefit plan assets.

Gross profit was $46 million for the fourth quarter and $205 million for the full-year. The gross profit declined $24 million or 11%. Our gross profit margin was approximately 10% for both fourth quarter and full-year 2009 compared to 14% for the full-year 2008. The impact of higher inventory costs for purchases from Russia and the cost of electric power for SWU production in earlier periods were the largest factors in the profit margin decline as the average price billed for both SWU and uranium were higher.

Below the gross profit line we have expenses for advanced technology primarily the continued demonstration and development costs of American Centrifuge. During the fourth quarter had substantially demobilized construction of the project but our continued demonstration and development efforts to address DOE’s concerns resulted in significant but lower expense. A greater decline could be seen in the fourth quarter relative to capital spending.

The demonstration expense relates to the preparation for the next phase in the Lead Cascade testing program as our crews disassembled and then reassemble and install some two dozen AC100 series machines in Piketon. The amounts of American Centrifuge spending expensed during the fourth quarter was about $24 million compared to $32 million in the third quarter and $29 million in the fourth quarter of 2008.

For the full-year advanced technology expense totaled $118 million, an increase of $8 million over 2008. We also recorded a special charge of $4 million in 2009 related to one-time termination benefits for severance payments, short-term healthcare coverage and various contract terminations.

In addition to advance technology expenses, $379 million of ACP related activities were capitalized in 2009 compared to $462 million in 2008. I would note that capitalized spending in the fourth quarter was $52 million compared to an average of $109 million per quarter during the first three quarters of 2009.

Selling, general and administrative expense increased by $4.5 million in 2009 compared to 2008. Salaries and employee benefits expense accounted for $3 million of that increase mainly as a result of last year’s decline in the value of pension assets. Consulting expenses were $500,000 higher in 2009 compared to the year before due to increased corporate and project strategic efforts. In addition, the 2008 period included a $1 million credit for stock based compensation due to a decline in the stock price in early 2008.

We also saw a decrease of $16 million in interest expense in 2009 as we capitalized more of the interest paid and we repaid the remaining principle balance on our senior notes redeemed in January 2009. Interest income on the other hand was $1 million in 2009 compared to $25 million in 2008 due to a smaller cash balance and lower interest rates.

We had a one-time item that made a significant positive difference in our results. We realized approximately $70 million before tax from U.S. government distribution of duties deposited by Eurodif. As we have discussed in previous quarters we entered into a settlement agreement with Eurodif and its affiliates in May 2009 after the U.S. Supreme Court ruled in our favor last January.

Going to the bottom line we recorded net income of $49.5 million for the fourth quarter compared to net income of $25.1 million in the same quarter of the previous year. The diluted EPS was $0.31 per share for the fourth quarter of 2009 versus earnings of $0.16 per diluted share for the same quarter of 2008. For the full-year we had earnings of $58.5 million compared to $48.7 million in 2008. The diluted EPS was $0.37 per share in 2009 compared to $0.35 per diluted share in the same period last year.

Turning next to cash we ended the year with $131 million in cash compared to $249 million on December 31, 2008. The major draws on cash for the year were the repayment of senior notes due in January 2009 of $96 million and capital expenditures mostly related to ACP of $441 million. Cash flow from operations for the year was $443 million compared to cash flow used in operations of $105 million in the same period last year. That $548 million improvement is primarily from monetizing inventory that we built in 2008.

You may have seen a news release that we issued right after the markets closed on Friday regarding our new credit facility. We were pleased with the quality of banks taking a lead position in the credit facility and that we were able to replace our existing facility well ahead of its August 2010 maturity. We believe the facility has sufficient size to support the working capital needs of our existing operations. The facility can be expanded and we look forward to working with other institutions as we seek to syndicate and expand the facility up to its maximum $350 million size.

As noted in our news release we are taking a different approach to our outlook in 2010. Because spending on the American Centrifuge Project has such a major effect on our net income and cash flow from operations and given an uncertain spending pattern for the full-year we are not providing specific guidance for net income or cash flow from operations. That said, we are providing specific guidance on other elements of our business.

For example, we expect revenue of approximately $2 billion with SWU revenue accounting for $1.4-1.5 billion of that total. On the cost side we expect to buy less electricity as specified under our contract with TVA beginning in September. We expect the price we pay Russia to increase by 8% over the terms of a contract amendment signed last year. Unfortunately we will be operating under tight profit margins. We are assuming a 15% decline in SWU sales volume. Total revenue is expected to stay at about $2 billion but the average price billed to customers is expected to rise just 3% in 2010 due to the mix of customer contracts.

So although we expect our costs to moderate compared to 2008 and 2009 higher costs are embedded in our average inventory costs. The result is a gross profit margin that we expect to be between 5-6%. Bob Van Namen’s marketing and sales organization will clearly attempt to improve this picture by making spot sales occur at market prices. Uranium enrichment is a long-term contracting business and we see very little open demand for 2010 at this point.

The wild card in our outlook is how much will be spent on the American Centrifuge Project. For example, John discussed the $45 million in matching funds from DOE that may be made available to the project. We expect to spend $40-50 million both expensed and capitalized on the project in the first quarter. We will of course be revisiting our spending plan on the American Centrifuge Project throughout the year. Advanced technology expense for the project has a very direct effect on net income and here in February the uncertainty in spending levels has led us to refrain from bottom line guidance.

The uncertain amounts of expense related to American Centrifuge development also affects cash flow from operations. So we are not providing specific guidance. However, we have said we expect to build inventory in 2010 in anticipation of future sales which is a draw on cash. With that American Centrifuge expense we would expect to be roughly break-even on cash flow from operations. Please note there are a number of additional factors listed in the outlook section of the news release that could also affect net income and cash flow.

To quickly summarize, our core operations were profitable in 2009. Our cash flow from operations was very strong as we monetized inventory built in prior years. To echo John we are vigorously addressing DOE’s concerns so that we will be in a position to update our application to the Loan Guarantee office later this year. Lead Cascade testing of the AC100 machines should begin in the near future which we believe will go a long way towards addressing their technical concerns.

Operator we are now ready to take questions from our callers.

Question and Answer Session


(Operator Instructions) The first question comes from the line of Analyst for Laurence Alexander - Jefferies & Company.

Analyst for Laurence Alexander - Jefferies & Company

The Lead Cascade is expected to be up and running in early 2010. How do you see that playing out with the resubmittal of the DOE application? Do you think it has to run for a certain amount of time before you would resubmit? Any kind of color you could give us on when you expect now to resubmit that application?

John Welch

Let me take the first cut at it and Phil may want to jump in later. Clearly one of the most important aspects of the Department of Energy is to see the Lead Cascade operation. It is fully reflective of the machines for the commercial plant and will be operating in a commercial plant mode. There are some things that clearly are there that are a function of running it. So we would want to run it continuously, get it up and running as quick as we can and then keep it running continuously and it certainly helps address a lot of the technical concerns, many of which are reflective to go back to not the technology itself but the ability to manufacture and assemble machines. That would be demonstrated through that process.

Also, as you know there are the financial concerns as well. So it is hard to pick a point in time when you would go do it just based on cascade operations but that clearly is an important milestone in getting ready to come back at the loan application. Phil anything you want to add?

Phil Sewell

Lead Cascade provides a tremendous amount of information with respect to reliability and availability of a plant. The early operation over a short period of time provides insight into I will say years and years of operations. So we would look for a short period of time of having a full cascade up and operating at the conditions you would see in a commercial plant in order to integrate that into a loan guarantee resubmittal. That is why we would want to see at least a short period of time for the experience, the data and I will say the manufacturing and verification of our QA program to address the tremendous number of concerns or I will say the concerns, not a tremendous number, but the concerns that have been expressed in order to make sure that the 30-year operation of these plants at commercial plant levels are met and realized at the levels necessary to support a loan guarantee.

Analyst for Laurence Alexander - Jefferies & Company

A question on the DOE $45 million in funding. Could you give us any further color around those negotiations and kind of what sort of options as far as source and vehicle of funding and permitted uses of those funds?

John Welch

Really the discussions with DOE have just begun. The funds have not been appropriated specifically but we are working on alternative approaches with DOE that would permit the $45 million of funding. As a point of record, they do not include the sale of any DOE uranium. I think that is important to the miners. We are looking at a series of alternatives there likely that would not require appropriated funds but we have really only just begun the process. It is set up as a cost matching type of activity so for the $45 million Department of Energy would be putting into the demonstration activities there would be an equivalent amount put in there by USEC.

Phil Sewell

We are also sharing with them a work scope associated with that $45 million on a cost sharing basis which basically represents a $90 million program. That work scope has already been shared with both the department and we are working on I will say the fine details of reporting what will happen when and the degree of I will say verification that the DOE is looking for in order to give them the confidence that the money they are providing on this cost sharing program is providing value and advancing the technology and the commercialization of that technology.

Analyst for Laurence Alexander - Jefferies & Company

Regarding the negotiations with TVA, post 2012, I am wondering if there is any progress on that front and if those negotiations assume Paducah keeps running through 2018 or 2020?

Bob Van Namen

Clearly we are focused on those discussions with TVA and with power representing 70% of our production costs with the production of SWU at Paducah that is going to be a major driver in our decision making process. We have the ability to extend the plant as long as we want. It has at least a 10-year supply of Freon, that is the coolant that the plant uses to operate, we have plenty of Freon available and it really depends on the economics of the supply and the demand in the market as to how we proceed with that extension.


The next question comes from the line of Gabriela Bis - Goldman Sachs.

Gabriela Bis - Goldman Sachs

Regarding your guidance on the uranium sales of $250 million I know we haven’t really seen this level of revenues for you for quite some time and I wanted to know if you are implicitly assuming uranium prices are going to increase significantly in 2010 or is there something else in that assumption that I am missing?

John Barpoulis

I think it very much is a function of the timing and mix of customer sales and sales we expect. So we have seen our uranium revenue change over time but that is a function of where we see things at this point.

Gabriela Bis - Goldman Sachs

Regarding your credit facility, I wanted to know if you could walk us through what the ACP spending restrictions you mentioned are? Is it a dollar amount or a percentage of revenues? What kind of restrictions are included in that credit facility?

John Barpoulis

I will point out we will have a significant amount of information in the 10-K filing in addition to what was provided in the 8-K on Friday evening as well as the credit facility is available for folks as an attachment if they are interested in going through additional information. Our flexibility around the American Centrifuge Project was a very important aspect of the credit facility. We were very focused as we were going through our discussions with our lenders on insuring we had sufficient flexibility. One is for example that the ACP subsidiaries we had established last year and where we are looking to push our ACP assets down to, those are not guarantors of the credit facility. So they are separate and distinct and the structure really facilitates the DOE loan guarantee down the road.

So that was a very important aspect. Now, the specific spend basket is for $90 million, my apologies, you hear in the background apparently our fire alarms are being tested here. I will put you on mute for just a moment. This is a first.

Back to the ACP spending basket. It begins at $90 million and it can be supplemented in two ways. One is for every dollar of additional commitments that we receive through our follow-on syndication efforts we expect that can increase the basket to a maximum of $165 million. In addition there are no restrictions on funding from DOE, for example, for the project. That would be in addition to that basket. Then subject to any restrictions in the credit agreement we are able to provide to the extent there is any long-term equity or long-term capital raised that is also able to be directed towards project spending. Again, it provides for the flexibility we were seeking in this process.

Gabriela Bis - Goldman Sachs

I think you mentioned you expect $60 million in the first quarter? Or no, $40-50 million in the first quarter, correct? Of that $90 million?

John Barpoulis

Let me clarify. It is at the point at which we close. That is the first piece. So the $40-50 million is for total project related spending and that is in the first quarter. That includes what was already spent in January and February. Also recall we have been going through what I would characterize as the wind down in spend profile related to demobilization and we expect that trend to continue to trend down until further decision is made.


At this time there are no further questions in the queue. I will turn the conference back to management for any additional remarks.

John Welch

Thank you for your participation this morning. Clearly we continue to have significant challenges but we are committed to addressing the issues head on. Significant progress is being made on a number of fronts by the USEC team and we believe the administration’s recent vocal support for and positive action regarding nuclear power is certainly greatly encouraging. We appreciate your support and your interest and investment in USEC. We look forward to talking to you over 2010 to report progress on the project as we move forward. Operator, thank you very much.


That does conclude today’s conference call. We thank you for your participation.

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